Could I generate an 8.5% yield and earn passive income in every month?

I think it would be great to receive a dividend cheque each month and earn passive income all year round. Well, I reckon I’ve found a way.

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I’ve been looking at how I might be able to generate passive income in every month of the year. The six FTSE 100 stocks I’ve chosen for this hypothetical exercise could give me an annual return over twice the average for the index as a whole.

To keep things simple, I’m going to assume that any dividends already paid in 2024 will be repeated next year.

Winter blues

January is traditionally a quiet month for dividends. However, National Grid usually makes an interim payment in the month, followed by a final one in August. For its March 2024 financial year, it’s increased its first payment by 8.7%, compared to a year earlier. If this hike is repeated in August, the total dividend for 2024 could be 60.29p. This implies a yield of 5.8%.

British American Tobacco normally pays its dividend in four equal instalments, starting in February. The amount declared for the first quarter of its current financial year is 58.88p. Assuming this is replicated in May, August and November, the shares are currently yielding an impressive 9.8%.

Another tobacco company, Imperial Brands, also pays out quarterly. If the amounts for the year ended 30 September 2023 are repeated, shareholders will receive 146.82p a share over the next 12 months. That’s a yield of 8.4%.

Spring is in the air

April could be a bumper month for HSBC (LSE:HSBA) shareholders. The company has promised to pay a special dividend of $0.21, once the sale of its Canadian division has been completed. I think this could be paid next month, along with the final amount for 2023 ($0.31), which has already been confirmed.

The next three payments are more difficult to predict. The bank has promised to return 50% of its earnings to shareholders. Analysts are expecting earnings per share of $1.40 in 2024, yet the average of their predictions is for a dividend of $0.60 — a payout ratio of ‘only’ 43%. As a shareholder, I’m expecting to receive $0.70 (50% of earnings) this year, on top of the one-off bonus.

Despite concerns about bad loans arising from the property market in China, the bank reported record profits for 2023. I therefore remain optimistic that it will continue to offer above-average yields.

July is usually another quiet month. But J Sainsbury is due to make its final payment in the month, in respect of its 2024 financial year. This is normally followed by an interim one in December. It looks to me as though the annual dividend will remain unchanged at 13.1p. If I’m right, the stock’s yielding 5.2%.

DS Smith has historically paid its final dividend in October and an interim one in January. I think shareholders will receive 18p this year, giving a current yield of 5.4%.

What does this all mean?

If my analysis is correct, and I invested £1,500 in each of the six shares, I could receive £765 of dividends over the next 12 months.

That would be a yield of 8.5%, comfortably above the FTSE 100 average of 3.9%.

MonthDividend income (£)Companies paying dividends
January55National Grid and DS Smith
February37British American Tobacco
March44Imperial Brands
May37British American Tobacco
June66Imperial Brands and HSBC
July55J Sainsbury
August96British American Tobacco and National Grid
September66Imperial Brands and HSBC
October54DS Smith
November37British American Tobacco
December114Imperial Brands, HSBC and J Sainsbury
Source: author’s calculations based on closing share prices on 14 March 2024

Of course, dividends are never guaranteed. And history isn’t necessarily a good guide to the future. I’d also want to do more research before buying some of these stocks. But this theoretical exercise highlights how choosing a few high-yielding Footsie shares could generate an impressive return.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

HSBC Holdings is an advertising partner of The Ascent, a Motley Fool company. James Beard has positions in HSBC Holdings. The Motley Fool UK has recommended British American Tobacco P.l.c., DS Smith, HSBC Holdings, Imperial Brands Plc, and J Sainsbury Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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